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Cryptocurrency trading volumes are still high historically speaking. And though cryptocurrency trading has developed over the years, major crypto exchanges have not. According to a study done in December 2017, investors have lost over $15 billion to hacks. Add in the recent Coincheck hack, and the number is over $15.5 billion. What’s more, exchanges also lack transparency, allowing them to manipulate prices and conduct shady operations without clients necessarily knowing. Because cryptocurrency trading is still relatively new, investor protections aren’t up to snuff. Many question the legality of some exchanges’ behavior.
In response to these problems, several companies are launching new exchanges to compete with the Coinbases and Binances of the crypto world. These exchanges are integrating blockchain technology with their platforms, in hopes of increasing security and ushering in transparency. What’s more, the implementation of distributed ledgers allows regulators to view the information they need to help protect investors. Regulation, when done right, will no longer be a byword in the crypto community.
The Legolas Exchange and their Decentralized Solution
One initiative, the Legolas Exchange, is creating a hybrid cryptocurrency exchange. Their goal is to take the best parts of centralized and decentralized exchanges to create a platform that best serves investors, but still keeps central authorities at a healthy distance. Their team consists of an experienced group of financiers and entrepreneurs, giving them the ability to navigate an ever-changing industry.
To address the security issue, the Legolas Exchange will implement two crucial features. First, the exchange will use cold wallets as a security feature to serve as a last result in case users lose their private keys, or in case their devices are compromised. If a client loses their key, their corresponding cold storage wallet will be retrieved from the bank safe where it is stored. The use of cold wallets will add security to the exchange. This is particularly important, especially in light of the recent Coincheck hack, which was in part due to issues involving hot wallets.
Second, the exchange will not allow for simple login and password credentials. Each user’s account with be accessed through secure two-factor authentication (2FA) with FIDO U2F support or client certificates. This 2FA feature will be stronger than traditional combinations like Google or SMS authentication. These weaker types of 2FA will only be allowed for temporary scenarios since they are prone to phishing scams. Though the two features seem basic, their implementation will go a long way in protecting investors’ assets.
In terms of transparency, the Legolas protocol integrates a decentralized ledger within its centralized platform. The blockchain allows for time-stamped trades and immutability, providing a fair and transparent trading environment. The protocol uses its blockchain powered platform to determine the position of a given order in the order queue. When the block is confirmed, the order sequence is logged onto the blockchain, making it impossible to front-run or submit personal orders ahead of client orders. The temporality of the exchange can be viewed by any and all platform participants.
The blockchain also records day to day operations beyond buy and sell orders. Withdrawals, deposits, and other transactions are recorded on the blockchain. This allows users to view their personal account balances and transaction history like any other platform while still keeping the information private. For regulators, the platform is designed to be easily auditable, ensuring that no fraud or manipulation is taking place.
Evolving community rules
While the concept of regulation is anathema to the crypto community, the industry needs to evolve under ever increasing pressure. As countries like South Korea, China, and the United States continue to crack down, blockchain companies must adapt. Cryptocurrency trading can still stay decentralized even if it is regulated. The Legolas Exchange, with its hybrid structure, allows regulators to view its operations and audit its centralized infrastructure while still keeping personal data private. Additionally, the blockchain aspect provides a way for regulators to receive real time reports, as every transaction is publicly logged.
Improvements in security and transparency will serve cryptocurrency traders well in the future. The Legolas Exchange protects investors while also opening up the door for regulation and periodic audits. When done properly, these things can help bring more investors in off the sidelines, which will only benefit the crypto community.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.